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A Rare Metal You've Never Heard Of Is On A Tear

The following is a guest post by Malcolm Gissen, co-manager of The Encompass Fund.

Few investors know that tungsten was the number one metals performer in the world last year, gaining 35% while most other metals declined in price.

Tungsten has retreated a bit so far in 2012 but the current price of about $425 per metric ton is still historically high. With demand increasing at a rate of about 8% a year and production declining,it’s likely that the price of tungsten is will rise over the next few years.

Tungsten is classified as a rare metal though it’s found in many countries. It is indispensable because of its many applications. It’s the second hardest material with the second highest melting point (diamonds ranks as first in both categories), and thus there are few materials that can be substituted for it. In the U.S. tungsten’s uses include tools and machinery primarily in the metal-working, construction, mining, and oil and gas drilling industries. It is estimated that 25% of the use is in light filaments and 10% for artillery and weapons.

Why is tungsten rising in price? Like several other metals, the tungsten market has been controlled by China. Tungsten prices jumped 35% in 2011 and remain historically high. That is because of concerns that China, the leading producer and consumer, has been reducing exports. This concern is so great that in 2011, the UK Geological Survey put tungsten at the top of its list of economic metals whose supply is at risk. China has taken several steps to reduce production and exports of tungsten: they have shut down small mines as unsafe, implemented export quotas, and added export duties.

It is not that easy to invest in tungsten. There are two Canadian companies currently focused primarily on tungsten production. Malaga, Inc. (MLG.TO; MLGAF.PK) produces tungsten in Peru, and is increasing production. The stock trades at about 15 cents. North American Tungsten (NTC.V; NATUF.PK) is in production in the Northwest Territories, Canada. It began production in 1962, and has shut down the mines several times when the tungsten price got too low. It’s stock trades at about 43 cents. Geodex Minerals (GXM.V; GXMLF.PK) is an exploration company with properties in New Brunswick, Canada. It is exploring for tungsten, molybdenum, rare earth elements, and other metals and minerals.

These are micro-cap companies, in other words, be prepared for volatility and risk, while hoping for gains. Further, with tungsten prices at highs, and the supply-demand characteristics, one can anticipate other companies making efforts to discover and produce tungsten.

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You neglected to mention Woulfe Mining (WOF) which trades on the TSX. They just inked a deal with Berkshire’s IMC. Its a fantastic off take agreement that will see the Sangdong into production and provide a customer for 90-100% of the tungsten produced.

– “Drilling has recently been completed with the last two holes of the program intersecting substantial, scheelite bearing skarn mineralisation up to 150m to the east outside of the Union Carbide Feasibility Study area. Assays for these holes are pending. – Significant tungsten skarn mineralization has now been confirmed over 650m of strike and a vertical extent of 330m with mineralization remaining open in all directions. – Activities now moving to data compilation and the construction of a new geological and resource model with the aim of delivering a maiden JORC compliant resource calculation for Desert Scheelite by the end of June 2012.